Example Concept: Cost structures refer to the composition of a company's fixed and variable costs. Fixed costs remain constant regardless of production levels, such as rent and salaries, while variable costs fluctuate with production volume, like raw materials. A business with a high proportion of fixed costs may benefit from economies of scale, as increased production can lower the average cost per unit, enhancing profitability. Conversely, a business with a high proportion of variable costs may be more flexible in adjusting to market demand but might face challenges in achieving substantial profit margins.